Firm Diversification and Asymmetric Information: Evidence from Analysts' Forecasts and Earnings Announcements

40 Pages Posted: 8 Nov 1999 Last revised: 26 Jun 2015

See all articles by Shawn Thomas

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Date Written: April 30, 2001

Abstract

Managers frequently cite the desire to mitigate asymmetric information as a motivation for increasing firm focus. The information benefits of focus appear relevant for the subset of firms that actually increase their focus; however, the relevance of focus-related information benefits for the population of diversified firms is an open question. This paper examines the relationship between corporate diversification and asymmetric information proxies derived from analysts’ forecasts and abnormal returns associated with earnings announcements. I find that greater diversification is not associated with increased asymmetric information. These results call into question the notion that corporate diversification strictly exacerbates information problems.

JEL Classification: G32, G29, M41, D82

Suggested Citation

Thomas, Shawn, Firm Diversification and Asymmetric Information: Evidence from Analysts' Forecasts and Earnings Announcements (April 30, 2001). Journal of Financial Economics (JFE), Vol. 64, 2002, Available at SSRN: https://ssrn.com/abstract=190376 or http://dx.doi.org/10.2139/ssrn.190376

Shawn Thomas (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

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HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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